ALS shares drop after analysts say shares are 'overvalued'
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The news: ALS shares pared gains on the ASX after the laboratory testing group's first-half results, released on Tuesday, received a mixed response from analysts.
The numbers: ALS shares fell 1.7% to $15.23 by 2:10pm AEDT, having closed 5.7% higher on Tuesday.
Analysts made the following revisions to their coverage of ALS:
- Jarden downgraded its rating from 'overweight' to 'neutral' but raised its target price from $14.25 to $14.40;
- UBS kept its 'buy' rating but cut its price target from $17.50 to $16.30;
- Macquarie retained its 'outperform' rating and increased its target price from $15 to $16.25; and
- Morningstar reaffirmed its fair value estimate of $10.20, but increased its FY25 earnings-per-share and dividends-per-share forecasts by 3% and 7% respectively.
The context: Jarden analysts said their key takeaway from the result was the in-line performance of ALS's life sciences division, which should see earnings momentum build through the second half of the year and into FY26. However, they see ALS's current share price as 'fair value' given the earnings outlook, driving a ratings downgrade.
UBS retained its 'buy' rating on expectations that record gold prices should support a recovery in exploration activity into FY26, boosting ALS's commodities segment, despite challenging exploration activity at present.
Macquarie increased its target price to reflect upgrades to its earnings-per-share forecasts of 2.5% in FY25 and 3% in FY26, FY27 and FY28. Its analysts expect earnings to be bolstered by long-term margins and a stronger recovery in ALS's commodities business in FY26 and FY27.
Morningstar equity analyst Mark Taylor said that ALS's shares are "materially overvalued", while earnings disappointment over the medium term is the mostly likely key potential catalyst for a derating.
What they said: "With ALS priced for growth, the market is likely to treat any setbacks harshly," Taylor said.
"Assuming maintenance of current margins, we'd need to see five-year organic revenue compound annual growth rate above 10% to justify the current share price. We think this is unlikely versus our 5% expectations."
The sources: Jarden research, UBS research, Macquarie research, Morningstar research
